The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle

Andrea Lanteri

American Economic Review, 2018, vol. 108, issue 9, 2383-2419

Abstract: This paper studies the business-cycle dynamics of secondary markets for physical capital and their effects on the macroeconomy. In the data, both capital reallocation and the price of used capital are procyclical. To rationalize these facts, I propose a model with endogenous partial irreversibility, where used investment goods are imperfect substitutes for new ones because of firm-level capital specificity. Equilibrium dynamics in the market for used capital induce countercyclical dispersion of marginal products of capital, propagate movements in aggregate TFP and provide a microfoundation for state-dependent non-convex capital adjustment costs.

JEL-codes: E22 E23 E32 G31 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20160131
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Citations: View citations in EconPapers (48)

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Working Paper: The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle (2013)
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